Correlation Between Shanghai Fudan and Zhongzhu Medical

Can any of the company-specific risk be diversified away by investing in both Shanghai Fudan and Zhongzhu Medical at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Shanghai Fudan and Zhongzhu Medical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shanghai Fudan Microelectronics and Zhongzhu Medical Holdings, you can compare the effects of market volatilities on Shanghai Fudan and Zhongzhu Medical and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Shanghai Fudan with a short position of Zhongzhu Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Fudan and Zhongzhu Medical.

Diversification Opportunities for Shanghai Fudan and Zhongzhu Medical

0.1

Correlation Coefficient

Shanghai Fudan  Zhongzhu Medical

Average diversification

The 3 months correlation between Shanghai and Zhongzhu is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Fudan Microelectronic and Zhongzhu Medical Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongzhu Medical Holdings and Shanghai Fudan is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Shanghai Fudan Microelectronics are associated (or correlated) with Zhongzhu Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongzhu Medical Holdings has no effect on the direction of Shanghai Fudan i.e., Shanghai Fudan and Zhongzhu Medical go up and down completely randomly.

Pair Corralation between Shanghai Fudan and Zhongzhu Medical

Assuming the 90 days trading horizon Shanghai Fudan Microelectronics is expected to generate 1.73 times more return on investment than Zhongzhu Medical. However, Shanghai Fudan is 1.73 times more volatile than Zhongzhu Medical Holdings. It trades about -0.01 of its potential returns per unit of risk. Zhongzhu Medical Holdings is currently generating about -0.03 per unit of risk. If you would invest  6,358  in Shanghai Fudan Microelectronics on October 4, 2024 and sell it today you would lose (2,519) from holding Shanghai Fudan Microelectronics or give up 39.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Shanghai Fudan Microelectronic  vs.  Zhongzhu Medical Holdings

Shanghai Fudan Micro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Fudan Microelectronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Fudan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Zhongzhu Medical Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhongzhu Medical Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Zhongzhu Medical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shanghai Fudan and Zhongzhu Medical

The main advantage of trading using opposite Shanghai Fudan and Zhongzhu Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Fudan position performs unexpectedly, Zhongzhu Medical can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Zhongzhu Medical will offset losses from the drop in Zhongzhu Medical's long position.

The idea behind Shanghai Fudan Microelectronics and Zhongzhu Medical Holdings pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.